Q&A: Avoiding the public spotlight

pfm: We recently reported that changes to UK accounting rules could spark a number of UK managers to restructure their funds. Has this been happening? 

Anderson: It’s certainly beginning to. Basically what happened is that the UK government reformed its accounting regulations so that certain UK limited partnerships would be regarded as “qualifying partnerships”, meaning their accounts must be prepared in accordance with the UK Companies Act 2006, filed with the UK Companies Registrar and made available for public inspection at the partnership’s head office.

Many investment funds structured as UK limited partnerships are caught by the changes. However, many GPs are naturally reluctant to make their audited accounts publicly available because they include sensitive information on fund performance. 

The simplest way to avoid the new requirement is to avoid any use of a UK limited partnership during fund structuring, which a number of our clients are being advised to do. However, for qualifying partnerships set up before the changes, it is often not feasible to replace those vehicles with non-UK partnerships.

Will these GPs have to open their financial statements to the public then? 

Not quite. As I was alluding to earlier, many GPs are thinking about restructuring their funds to avoid the requirement. One option is to attach an offshore general partner to the fund structure. We recently assisted a client to form a Guernsey limited liability partnership (or Guernsey LLP), the legislation in respect of which was only introduced earlier this year, to act as general partner of a UK limited partnership for the purpose of ensuring that the vehicle wasn’t subject to the new regulations. I believe this is the first Guernsey LLP to be so used.

The way it works is that the definition of a Qualifying Partnership under the regulations doesn’t include a UK limited partnership if at least one of its general partners is a limited liability partnership. Accordingly many GPs are considering the appointment of an LLP as an additional general partner to any qualifying partnerships within their structures. A number of jurisdictions have had legislation enabling the formation of LLPs for some time but the creation of this new Guernsey LLP means Guernsey can now offer the same.

Are the new regulations leading onshore UK managers to think about moving offshore? 

Some have already done so, but I would not expect an avalanche of onshore managers moving to the Channel Islands purely as a result of the changes. Some UK managers may simply feel the new requirements are not too much of a burden, and would rather avoid having to establish relationships with Channel Island service providers and local administrators just to deal with these changes. Forming those new relationships takes time and effort. But as GPs returned from their summer holiday, we’ve seen an uptick of interest in using the Guernsey LLP to escape the new UK accounting regulations. That’s because details of members of a Guernsey LLP are not publicly available, the vehicle is tax transparent in Guernsey and there is no requirement to audit or file the financial statements of a Guernsey LLP. And for GPs who already use Guernsey structures, the appointment of a Guernsey LLP to this role is an obvious choice because of the administration resources already available to it in the jurisdiction.

For those who are interested, the new UK regulations apply to the first financial year of a qualifying partnership commencing on or after October 1, 2013, so it is anticipated that many fund managers will wish to restructure their existing structures in this way by end of year. Fortunately, the process of forming a Guernsey LLP can often be completed within a single day – although consideration must also be given to any stakeholder consents required to effect the necessary restructure.